Auto parts exporters not to benefit from govt's back-up guarantee

The announcement yesterday of a Rs 350-crore back-up guarantee to be provided by the government for credit cover to the Export Credit Guarantee Corporation (ECGC) will not significantly benefit auto parts manufacturers who export to Big 3 car makers of Detroit — General Motors, Ford, and Chrysler.

A back-up guarantee is a cover provided by the government to ECGC if exporters default on payment.

As many as 50 auto component manufacturers have been denied credit insurance cover for the goods exported to car makers in the US since November this year.

Reacting to the fiscal stimulus package announced by the government on Sunday night, a top ECGC official said: “Whether or not the government provides a back-up guarantee for our credit cover, there is no change in our stance on exports to the Big 3.

Therefore, if there is no guarantee for the auto component exporter to get back his money, we reserve the right to say no.”

ECGC currently covers exports from India to 190 countries. The average rate of premium it charges on exports to these countries stands at 0.30 per cent of the total value of the goods exported. Last year, the insurance major effected a 10 per cent cut in its insurance premium. Despite talks of the Big 3 car majors filing for Chapter 11— which qualifies them for government cash dole — ECGC has maintained that it will not raise the insurance premium rate for auto components exported to these car companies and their Tier 1 vendor companies. “ECGC has no proposals to increase its premium rates. As we have maintained always, our existing clients would continue to have their covers on normal terms and without any specific restrictions,” says the top ECGC official.

Between 2007 and 2008, ECGC insured engineering goods valued at Rs 43,853 crore out of which about Rs 9,500 crore was its revenue.

There are three auto major clients currently with ECGC who mostly take a whole turnover cover- which is cheaper, than a single risk premium cover which is expensive.